According to FINRA, four firms—M1 Finance LLC, Open to the Public Investing, Inc., SoFi Securities LLC, and SogoTrade, Inc.—were sanctioned a combined $2.6 million, including over $1 million in restitution to retail customers enrolled in fully paid securities lending programs and $1.6 million in fines for supervisory and advertising violations.

The firms failed to establish adequate supervisory systems for their fully paid securities lending offerings. Although each firm agreed in contracts with their clearing firms to determine which customers were appropriate for participation, the firms did not establish any criteria for customer participation or make appropriateness determinations. Instead, they automatically enrolled all new customers in fully paid securities lending at account opening.

When shares are borrowed over a dividend date, customers receive payments in lieu of dividends rather than actual dividends. These substitute payments typically are subject to higher tax rates than qualified dividends, potentially causing adverse tax consequences. The firms also provided customers with disclosure documents containing misrepresentations that customers would receive compensation, including a loan fee